California Home Mortgage

Americans
are increasingly turning away from variable rate mortgage products when
refinancing according to the Quarterly Product Transition Report issued by
Freddie Mac.  An increasing share of refinancing borrowers also chose to shorten their loan terms during the fourth quarter. 

In the
fourth quarter of 2010, fixed-rate mortgages (FRM) accounted for more than 95
percent of all loans used for refinance. 

Frank Nothaft, Freddie Mac vice president and chief economist commented
that “Fixed mortgage rates continued to slide lower during the first part of
the fourth quarter, reaching 4.17 percent for the 30-year mortgage in
mid-November in Freddie Mac’s Primary Mortgage Market Survey® and the lowest fixed
rates since the early 1950s.  It’s no
wonder borrowers are attracted to fixed-rate loans.

…(read more)

The Market Composite Index, a measure of
mortgage loan application volume, decreased 9.5 percent on a seasonally
adjusted basis from one week earlier.  On an unadjusted basis, the Index
decreased 7.9 percent compared with the previous week.

The Refinance Index decreased 11.4 percent
from the previous week and is the lowest Refinance Index recorded in the survey
since the week ending July 3, 2009. The four week moving average is down
6.2 percent. The refinance share of mortgage activity decreased to 64.0 percent
of total applications from 66.6 percent the previous week. This is the fourth
straight week the share has declined.

The seasonally adjusted Purchase Index
decreased 5.9 percent from one week earlier. The unadjusted Purchase Index
decreased 0.9 percent compared with the previous week and was 18.2 percent
lower than the same week one year ago.  The four week moving average is
down 1.9 percent.

“Mortgage rates remained above 5 percent last week, up almost a full
percentage point from their October lows, and refinance volume continued
to drop,” said Michael Fratantoni, MBA’s Vice President of Research and
Economics. “Applications for home purchases also declined on a
seasonally adjusted basis.  Buyers have not returned to the market as rising rates have reduced affordability, to some extent.”

…(read more)

The
nation’s homebuilders are still seeing a lot of dark tunnel ahead judging by their
responses in the most recent survey of attitudes about the home sales market
conducted by the National Association of Homebuilders (NAHB).   According to results of the survey the NAHB/Wells
Fargo Housing Market Index (HMI) released Tuesday remained stuck at 16 for the
fourth consecutive month.

The
survey, which has been conducted for over 20 years, measures the confidence of
homebuilders using three criteria; builder expectations of current single-family home sales and their expectations
for sales over the next six months, each measured as “good,”
“fair” or “poor;” and their  perceptions of prospective buyer traffic as
“high to very high,” “average” or “low to very
low.” Scores from each component are then used to calculate a seasonally
adjusted index where any number over 50 indicates that more builders view sales
conditions as good than poor.  The HMI
has not topped 50
since late in 2006.

Two of
the component indexes did increase slightly this month.  Perceptions of current sales conditions rose
from 15 to 17 and the component gauging sales expectations over the next six
months rose one point to 25.  The third
component, level of current traffic, remained unchanged at 12.

On a regional basis, HMI scores were mixed in February. The Northeast
registered a two point gain to 22; the South went up one point to 18, the other
two regions declined; the Midwest one point to 12 and the West two points to
13.

NAHB Chairman Bob Nielsen blamed the lack of confidence on a tight
lending environment making it difficult for builders to obtain credit for new
and existing projects combined with a mixture of other market issues such as
inaccurate appraisals and the ongoing flood of foreclosures.

NAHB Chief Economist David Crowe echoed Nielsen on the problem of tight
credit to builders and added, “Builders are telling us that some pockets
of optimism have begun to emerge, but many prospective purchasers are concerned
about selling their existing home in the current market, or face difficulty
securing credit for a home purchase — even when they are well-qualified.”

CHECK OUT MND’S HOUSING DATA PAGE FOR CHARTS

…(read more)

Federal
Reserve Governor Sarah Bloom Raskin called out housing finance players in a
speech on Friday, reminding them of the “low road” they traveled
before the housing collapse and the debt they owe the American people for rescuing
them from their excesses.  She also told
her audience that reforming the servicing industry is “the key to economic
recovery.”

Speaking
to the Midwinter Housing Finance Conference in Park City Utah, Raskin said that
in an economic sense the recession is over, but “Americans still looking
for work, living in cars or motels, or trying to keep their businesses out of
bankruptcy would beg to disagree.” 
The lethargic pace of recovery has many causes but, in her view, the big
drag is the state of the housing sector. 
Usually it is the first to recover because of low interest rates and
pent-up demand and is followed by consumer expenditures which magnifies and
multiples the effect of the housing recovery.

She called on the industry to pay back the American citizenry in full
by supporting those who have been buffeted and injured by the housing
crisis.  “When we traveled the low road,” she said, “the only
question was: Will this practice make me rich? Taking the high road means we
continually ask: Do our financial and legal arrangements contribute to the
public welfare and the common good?

…(read more)

If you’ve been keeping up with housing headlines over the past month
you’ve probably felt a bit overwhelmed by all the different perspectives
and opinions that have been offered on the future of the housing
finance system. Just about every economist and bond market analyst has
shared their view on the topic, including us. Although no direct plan
has been provided by the Administration, a general outline was released
today.

HERE IS THE RECAP…HOUSING FINANCE REFORM: Reduced Loan Limits, Larger Down Payments, Higher FHA MIP Fees

AND OUR INSTANT REACTION….

The first thing to take away from this paper is the Administration’s
intention to wind down Fannie and Freddie on a responsible timeline.
That tells you this reform/winding down process will take many years and
much debate. 5 to 7 years according to Treasury Secretary Tim
Geithner.  There’s nothing wrong with that though. Slow and steady works
as long as lenders have funding liquidity in the process. The main goal
is to get housing finance reform done right….the first time, this
market can only take so much more stress, rewriting regs repeatedly
would be detrimental to the overall housing recovery process.

Next on the list of observations is a tightrope transition from
government supported loan funding to private investor supported loan
funding. It appears the Administration is taking an “if we don’t do it,
someone else will” approach. They will attempt to accomplish their
objective of reducing the government’s “footprint” in the secondary
mortgage market by tightening underwriting guidelines and raising fees.
They believe this will effectively “level the playing” field and lower
the barriers to entry for private investors. We hope risk retention
(skin in the game) regs don’t “unlevel” that playing field.

Plain and Simple: In the short run, at least for loan pricing
and mortgage rates,  the most important debate should be focused on Risk
Retention reform. There is a considerable amount of content already
published on MND addressing the core issues at hand. Here are just a
few….

Proposed Risk Retention Reform Affects Banker and Broker Loan Pricing

Pending Risk Retention Guidelines Create More Confusion in Mortgage Industry

MBA Urges Flexbility in Interpretation of Risk Retention Regs. What Counts as Qualified?

Bill Berliner: The Risk Retention Debate

WSJ: “Mortgage Rules Delayed In Regulator Spat”

NOW WHAT?

There is much “reading and reacting” ahead for us.  The Administration
expects the industry to provide feedback and perspective on their proposals.  We’ll do our
best to put the important information in front of you. Your job is to
share personal opinion based on personal experience. What will work and what won’t work?

Reuters has accumulated feedback from various experts. This should help get the ball rolling…..

…(read more)

Reuters has shared a sneak peek at the Obama Administration’s GSE Reform White Paper, which is due tomorrow.

Here are the headlines that just flashed across my Eikon viewer….

15:11 10Feb11 RTRS-OBAMA HOUSING WHITE PAPER DUE FRIDAY INCLUDES OPTION TO CREATE FDIC-LIKE INSURANCE FOR MORTGAGE-BACKED SECURITIES — SOURCES

15:11 10Feb11 RTRS-OBAMA WHITE PAPER INCLUDES GOVT
BACKSTOP OF MORTGAGES DURING NORMAL TIMES BUT PRIVATE MBS INVESTORS
WOULD TAKE FIRST LOSS — SOURCES

15:11 10Feb11 RTRS-OBAMA PAPER TO OFFER ALTERNATIVE OPTION
TO CREATE GOVT SYSTEM THAT WOULD PROVIDE GUARANTEE ONLY DURING TIMES OF
CRISIS — SOURCES

15:11 10Feb11 RTRS-OBAMA PAPER TO OFFER THIRD OPTION OF LEAVING FHA AS ONLY PROVIDER FOR GOVT-BACKED MORTGAGES — SOURCES

15:11 10Feb11 RTRS-OBAMA PAPER SEPARATELY BACKS GRADUAL WIND-DOWN OF FANNIE MAE AND FREDDIE MAC — SOURCES

…(read more)

The Mortgage Bankers Association (MBA) today released its Weekly
Mortgage Applications Survey for the week ending February 4th, 2011.

The Refinance Index decreased 7.7 percent from the previous week.  The
four week moving average is down 1.5 percent. The refinance share of
mortgage activity decreased to 66.6 percent of total applications from
69.3 percent the previous week. This is the lowest refinance share observed in the survey since the week ending May 14, 2010.

The average contract interest rate for 30-year fixed-rate mortgages
increased to 5.13 percent from 4.81 percent, with points decreasing to
0.84 from 1.02 (including the origination fee) for 80 percent
loan-to-value (LTV) ratio loans.  This is the highest contract 30-year
rate recorded in the survey since the week ending April 9, 2010. The 32
basis point jump is the largest rate increase since June 2009.  The
effective rate also increased from last week.

“Mortgage rates increased last week as many incoming economic
indicators continue to show stronger growth than had been anticipated.
Refinance volume continues to be low, as fewer homeowners with equity
have any incentive to refinance,” said Michael Fratantoni, MBA’s Vice
President of Research and Economics. “We are at the beginning of the
spring buying season, but purchase volume remains weak on a seasonally
adjusted basis.”

…(read more)

The new
Chairman of the House Financial Services Subcommittee on Capital Markets and
Government-Sponsored Enterprises has invoked what he called “The Cantor
Rule” as a framework for reforming the U.S. housing finance mechanism. 

Representative
Scott Garrett (R-NJ) shared with attendees at the American
Securitization Forum (ASF) Conference on Monday what Majority Leader
Eric Cantor tells House members to always ask themselves, ‘Are my efforts addressing
job creation and the economy; are they reducing spending; and are they
shrinking the size of the federal government while increasing and protecting
liberty? If not, why am I doing it? Why are we doing it?’

“Applying the Cantor Rule to the GSEs,” Garrett said, “the
question I believe needs to be answered first is – What are the things we can
be doing right now, this very instant to: 1.) Protect taxpayers; 2.) End the
bailouts; 3.) Get private capital back in our mortgage markets; and 4.) Decrease
government exposure to housing?  I
believe these four objectives should be the driving forces in our initial
decisions regarding GSE reform legislation.”

Garrett said, while there are countless ways to address these goals
legislatively there are four specific areas that would be good places to start.

…(read more)

The Federal Housing
Finance Agency (FHFA) has issued proposed rules regarding private transfer fees on
properties securing mortgages intended for sale to Fannie Mae, Freddie Mac, or Federal
Home Loan Bank members.  The rules
reflect the agency’s response to 4,210 letters commenting on a “proposed
guidance” outlining the issue in August 2010.  The wave of comments came from interested
parties that included legal and trade associations, conservation and other
non-profit organizations, condominium associations, title companies,
developers, and state and local government.

Transfer fees are
contractual arrangements where an owner pays a fixed amount or a
percentage of the sales price at the time of transferring the property. The transfer fees in
question are collected by third parties each time a property changes
hands.  The fees are memorialized in deed
covenants and may benefit a homeowners’ association, conservation land bank, non-profit
organization or any number of other entities. 
They are also used by builders and developers to provide themselves with
an income stream long after a development is complete.

…(read more)

Citing the
limited benefits of proceeding with it and the potential compliance difficulties that would arise from it,
the Federal Reserve Board had decided not to finalize three pending rulemakings scheduled
to go into effect in July.  The rules
were to be promulgated under Regulation Z which implements the Truth in Lending
Act (TILA) currently administered by the Board scheduled to be transferred to
the new Consumer Financial Protection Bureau (CFPB.)

Two of
the rules were first proposed in August 2009 and would have reformed consumer
disclosures under TILA for closed-end mortgage loans and home equity lines of
credit.  The third rule, issued in
September 2010 included changes to consumer disclosures for rescinding several
loan types, clarified lenders’ responsibilities when borrowers exercised those
rights, changed disclosures for reverse mortgages, proposed new disclosures for
loan modifications and proposed restrictions on some advertising and sales
practices.   The Board received more than 5,000 comments on
these proposed rules.

“This announcement and the delay of risk retention regs indicates the
Fed is capable of understanding the implications of implementing
‘onesy-twosy’ type reforms in the mortgage industry” said MND’s Managing
Editor Adam Quinones. “If the main intention of these updates is to
protect consumers, the Fed should further consider the ramifications if
they don’t delay originator compensation reform too. No definitive
compliance guide has been offered by the Fed. The Consumer Financial
Protection Bureau isn’t set up and won’t be until July.  The GFE and the
TIL still need to be simplified. Uncertainty is clearly abundant.  As a
result lenders are taking several different approaches on loan officer
pay practices that will only reduce financing options and increase costs
for consumers. This is not how we rebuild the industry.  We need less
confusion and more direct guidance.  Otherwise the consumer will end up
suffering”.

…(read more)